"We are talking about a blatant case of state blackmail, and they bang on about figures," said NTV general director Yevgeny Kiselyov on Friday night?€™s "Glas Naroda" program.
The question of how much Media-MOST?€™s assets are actually worth was lost in all the political discussion.
Before starting negotiations with Media-MOST head Vladimir Gusinsky to regulate the company?€™s debt to Gazprom-Media, the general director of the latter, Alfred Kokh, requested that Boris Karlov and Max Shcherbakov, directors of the TGP Aurora company, act as financial advisers.
Click here to read our special report on the Struggle for Media-MOST. TGP Aurora is a financial company established by the European Bank for Reconstruction and Development and the direct investment fund Texas Pacific Group, which manages assets of $10 billion. They include major stakes in Continental Airlines, the Bally of Switzerland fashion house, Del Monte fruit juice and motorcycle manufacturers Ducati. TPG Aurora has invested $300 million in Russia: in MTV Russia, Ren TV, Russkoye Radio, Shtern Cement, Sidanko, Alfa Group and the 36.6 chain of pharmacies.
TGP Aurora?€™s task was to audit the companies comprising Media-MOST. Karlov and Shcherbakov are themselves interested in Gusinsky?€™s media companies, but not for the amount that Gazprom-Media offered, Shcherbakov said in an interview with his partner.
Q:
How much is Media-MOST worth now in your opinion?
Karlov:
The parameters of our assessment did not exceed $500 million to $700 million. We spoke virtually every day to the management of Media-MOST, agreeing on the parameters of the assessment and the forecasts for the holding?€™s companies.
Q:
But $500 million to $700 million is three to four times less than the amount cited by the holding. Is this the post-crisis assessment in your view?
Karlov:
In 1998, prior to the crisis, CSFB [Credit Suisse First Boston financial group] evaluated Media-MOST at $1.6 billion to $2 billion, taking into consideration the possible IPO of the holding. No one believes this assessment today, including Mr. Tsimailo [Andrei Tsimailo, Gusinsky?€™s first deputy and one of those involved in negotiations with Gazprom-Media]. If one follows the same methodology as CSFB, using figures rather than forecasts, then the value is four times less.
Q:
Now the market is on the up and the holding has expanded. Kiselyov, the general director of NTV, said at the start of the year that 4.5 percent of NTV and 4.5 percent of TNT were sold to Capital Research based on much more optimistic assessments than yours.
Shcherbakov:
In 1997, the Russian television advertising market was worth $250 million to $300 million but in 1999, it was worth less than $200 million. The forecast for 2000 is $220 million to $250 million. In 1997, the RTS index was over 500 ?€” now it is only just 200. At the start of the year, Media-MOST had not defaulted on its debts, but even then the media assets managers at Capital Research were unhappy with the purchase.
Karlov:
Believe me, it was not our job to come up with a low assessment. We were to come to a compromise between the two sides that ultimately would result in the completion of the transaction.
We tried as hard as we could to find points that corresponded to Media-MOST?€™s assessment. We worked for several days in their office on Bolshoi Palashevsky Pereulok with Andrei Tsimailo and Chris Reno [foreign investment consultant].
Shcherbakov:
Our understanding of what happened is as follows: The negotiations began in a rather narrow context, explaining the means for paying back the debts and into which assets they could be converted. We separately assessed each company in the holding, compared our vision with that of Media-MOST and tried to decide on an assessment parameter from which it would be decided which shares would be written off for the debt. It rapidly emerged that no matter which way the debt was converted into shares, the Media-MOST management would lose control. Otherwise it was impossible to get the necessary amount. When this became clear, the Media-MOST representatives announced that this variant did not suit them. They wanted to find some kind of solution whereby they could retain control, which was a simple mathematical impossibility, or sell the business entirely together with its debts. As we were told, [Media-MOST deputy director Igor] Malashenko proposed a second version to Kokh. They soon arrived at the well-known "debts plus $300 million" equation.
Q:
Were there no objections from the Media-MOST representatives?
Karlov:
Not July 20. Only the technical details were discussed. When, for example, the money would actually be transferred.
Q:
Am I right in thinking the amount, which the parties finally agreed on ?€” $733 million ?€” was higher than your evaluation of Gusinsky?€™s total assets?
Shcherbakov:
According to the $473 million plus $300 million scheme, it works out that Gazprom-Media evaluated Media-MOST at $1.1 billion to $1.3 billion. I repeat: Our assessment was significantly lower. It is our opinion that Kokh?€™s offer was a very favorable one for Gusinsky.
Karlov:
As advisers, we told Kokh that he was significantly overpaying.
Q:
Does it make sense for someone to purchase the assets of Media-MOST from an economic rather than a political point of view?
Shcherbakov:
An unregulated default, lawsuits and the threat of bankruptcy could of course reduce its market value. Nobody wants extra headaches. It is possible that against the backdrop of today?€™s scandal it will be impossible to sell Gusinsky?€™s companies to anyone. Though as a whole, Media-MOST?€™s assets are attractive. For someone looking for a major media business in Russia, there are no alternatives to Media-MOST.
Karlov:
But it is impossible to find a high-profile investor in Russia with those kinds of funds, and there is no reason why anyone low-profile would be interested since the holding isn?€™t even back to zero profitability.
Q:
If its debt obligations were to be regulated, when could Media-MOST start being profitable again?
Shcherbakov:
From zero ?€” by the end of 2001 or the beginning of 2002. To bring in profits, the holding?€™s balance sheet must be consolidated and brought up to speed in a competitive post-crisis environment. At the moment, they don?€™t have a balance sheet ?€” they have a patchwork quilt.
The question of how much Media-MOST?€™s assets are actually worth was lost in all the political discussion.
Before starting negotiations with Media-MOST head Vladimir Gusinsky to regulate the company?€™s debt to Gazprom-Media, the general director of the latter, Alfred Kokh, requested that Boris Karlov and Max Shcherbakov, directors of the TGP Aurora company, act as financial advisers.
TGP Aurora?€™s task was to audit the companies comprising Media-MOST. Karlov and Shcherbakov are themselves interested in Gusinsky?€™s media companies, but not for the amount that Gazprom-Media offered, Shcherbakov said in an interview with his partner.
Q:
How much is Media-MOST worth now in your opinion?
Karlov:
The parameters of our assessment did not exceed $500 million to $700 million. We spoke virtually every day to the management of Media-MOST, agreeing on the parameters of the assessment and the forecasts for the holding?€™s companies.
Q:
But $500 million to $700 million is three to four times less than the amount cited by the holding. Is this the post-crisis assessment in your view?
Karlov:
In 1998, prior to the crisis, CSFB [Credit Suisse First Boston financial group] evaluated Media-MOST at $1.6 billion to $2 billion, taking into consideration the possible IPO of the holding. No one believes this assessment today, including Mr. Tsimailo [Andrei Tsimailo, Gusinsky?€™s first deputy and one of those involved in negotiations with Gazprom-Media]. If one follows the same methodology as CSFB, using figures rather than forecasts, then the value is four times less.
Q:
Now the market is on the up and the holding has expanded. Kiselyov, the general director of NTV, said at the start of the year that 4.5 percent of NTV and 4.5 percent of TNT were sold to Capital Research based on much more optimistic assessments than yours.
Shcherbakov:
In 1997, the Russian television advertising market was worth $250 million to $300 million but in 1999, it was worth less than $200 million. The forecast for 2000 is $220 million to $250 million. In 1997, the RTS index was over 500 ?€” now it is only just 200. At the start of the year, Media-MOST had not defaulted on its debts, but even then the media assets managers at Capital Research were unhappy with the purchase.
Karlov:
Believe me, it was not our job to come up with a low assessment. We were to come to a compromise between the two sides that ultimately would result in the completion of the transaction.
We tried as hard as we could to find points that corresponded to Media-MOST?€™s assessment. We worked for several days in their office on Bolshoi Palashevsky Pereulok with Andrei Tsimailo and Chris Reno [foreign investment consultant].
Shcherbakov:
Our understanding of what happened is as follows: The negotiations began in a rather narrow context, explaining the means for paying back the debts and into which assets they could be converted. We separately assessed each company in the holding, compared our vision with that of Media-MOST and tried to decide on an assessment parameter from which it would be decided which shares would be written off for the debt. It rapidly emerged that no matter which way the debt was converted into shares, the Media-MOST management would lose control. Otherwise it was impossible to get the necessary amount. When this became clear, the Media-MOST representatives announced that this variant did not suit them. They wanted to find some kind of solution whereby they could retain control, which was a simple mathematical impossibility, or sell the business entirely together with its debts. As we were told, [Media-MOST deputy director Igor] Malashenko proposed a second version to Kokh. They soon arrived at the well-known "debts plus $300 million" equation.
Q:
Were there no objections from the Media-MOST representatives?
Karlov:
Not July 20. Only the technical details were discussed. When, for example, the money would actually be transferred.
Q:
Am I right in thinking the amount, which the parties finally agreed on ?€” $733 million ?€” was higher than your evaluation of Gusinsky?€™s total assets?
Shcherbakov:
According to the $473 million plus $300 million scheme, it works out that Gazprom-Media evaluated Media-MOST at $1.1 billion to $1.3 billion. I repeat: Our assessment was significantly lower. It is our opinion that Kokh?€™s offer was a very favorable one for Gusinsky.
Karlov:
As advisers, we told Kokh that he was significantly overpaying.
Q:
Does it make sense for someone to purchase the assets of Media-MOST from an economic rather than a political point of view?
Shcherbakov:
An unregulated default, lawsuits and the threat of bankruptcy could of course reduce its market value. Nobody wants extra headaches. It is possible that against the backdrop of today?€™s scandal it will be impossible to sell Gusinsky?€™s companies to anyone. Though as a whole, Media-MOST?€™s assets are attractive. For someone looking for a major media business in Russia, there are no alternatives to Media-MOST.
Karlov:
But it is impossible to find a high-profile investor in Russia with those kinds of funds, and there is no reason why anyone low-profile would be interested since the holding isn?€™t even back to zero profitability.
Q:
If its debt obligations were to be regulated, when could Media-MOST start being profitable again?
Shcherbakov:
From zero ?€” by the end of 2001 or the beginning of 2002. To bring in profits, the holding?€™s balance sheet must be consolidated and brought up to speed in a competitive post-crisis environment. At the moment, they don?€™t have a balance sheet ?€” they have a patchwork quilt.